‘Bond King’ Bill Gross Urges Fed to Halt Rate Increases

By Senad Karaahmetovic

Bill Gross, the well-known bond investor and co-founder of Pimco, is advising the Federal Reserve to halt the rise in interest rates. He argues that the Fed should first determine if the economic stimulus has been adequately curtailed, as articulated in his op-ed for a major financial publication.

Gross highlights that the post-COVID period of low-interest rates has led to numerous Ponzi schemes, citing examples such as cryptocurrencies and non-fungible tokens (NFTs).

He urges the Fed to be more vigilant regarding the "dangerous levels of debt" recently recognized by the Bank for International Settlements. Additionally, he suggests that the ability of borrowers to secure future equity-based loans should be significantly restricted as housing prices experience a decline.

Gross warns of potential troubles if the nominal federal funds rate of 4.25 to 4.5 percent and the 2 percent r-star increase further. He notes, "There is too much hidden leverage and shadow debt lurking beneath the surface." He paraphrases the Persian poet Omar Khayyam, indicating that the Fed should take a moment to pause before proceeding further.

The Fed recently raised its benchmark interest rate by 50 basis points, bringing it to its highest point since 2007.

In a statement, Fed Chair Jerome Powell remarked, "We still have some ways to go. We will stay the course until the job is done." He emphasized that the Fed will not consider rate cuts until there is strong evidence of a sustained decrease in inflation, which he suggests will take some time.

Despite Powell’s assertions about a prolonged hawkish stance, the bond market appears skeptical. Lindsey Piegza, chief economist at Stifel Nicolaus & Co, pointed out that "the market clearly believes inflation will trend in a more favorable direction than the Fed currently expects."